Category: Business 7th July 2017
Changes in technology have considerably contributed to the globalization. Theodore Levitt, one of the first academics to write about globalization, stated that technology is the driving force behind the globalization of markets (Sinha & Sinha, 2008). Hill defined globalization as “the shift towards a more integrated and interdependent world economy” (Hill, 2009). The main components of globalization, according to the scientist, are globalization of markets and globalization of production. Advanced development of telecommunication, the Internet, and transportation are the main factors, which enabled businesses to break limited national borders and go global.
Globalization of production refers to the process of purchasing materials, manufacturing components, goods, and services from around the globe. It enables companies to take advantage of international wage gaps and differences in the cost of production, including such factors as energy, time, and capital (Sinha & Sinha, 2008). Conducting business on a global level involves trading over greater distances. This, results in increased operating costs and bigger number of difficulties in controlling foreign operations compared to domestic business. However, improved communications, namely electronic mail and the Internet have speeded up negotiations across continents and lowered the expenses related to coordinating and controlling foreign operations of international companies (Sinha & Sinha, 2008).
Globalization of markets refers to the process of integrating into the broad global market place through a number of strategies. These include exporting, licensing and franchising, joint ventures, and foreign subsidiaries. Advances in transportation and communication technology enabled companies like Coca-Cola, Pepsi, McDonalds, Levi Strauss, and Apple to sell their products worldwide (Sinha & Sinha, 2008). Similarly, advances in communication, namely, the invention of the Internet, have far-reaching effects on globalization of markets (Hill, 2009). Today companies can enter a global market simply by creating a homepage on the Internet. In addition, advances in transport technology fostered globalization of markets. Thus, companies can distribute products at a lower cost and in a shorter time.
Currently, it is hard to imagine business life without printer, Xerox, the Internet, and other technological inventions. Without telephones, for instance, it would be impossible to contact a company, which is miles away only in a couple of seconds. Is appears that globalization of production and markets might have been possible without such technological changes. Nonetheless, it is clear that technology accelerated these processes and made them more convenient. Thus, improvements in transportation and communication technology facilitated communication, controlling, and transportation processes. Moreover, the decreasing cost of technology has facilitated many developing nations, including China, India, Thailand, and South Korea, to improve their position in the global market, which would have been otherwise impossible.
Such statement appears to reflect little understanding of unique challenges of conducting business on a global level. If a company enters a global market “foreign conditions are added to domestic ones making the external environment more diverse and complex” (Sinha & Sinha, 2008, 1). The course of international business is necessary to teach about the challenges of going global and ways to turn them into competitive advantage.
Primarily, doing business on a global level involves challenges due to differences in business environment (Hill, 2009). These might be caused by differences in legal, political, and monetary systems, economic development, and culture, complexities in trade agreements and barriers, and the roles of regional economic alliances. Additionally, conducting international business involves many ethical challenges in terms of corruption, child labor and sweatshops, and sustainable development. Global market can open new horizons for a company. Yet if foreign conditions are overlooked, the company might confront many risks that are more complex than those in the local market. The course of international business can give an insight on how to value and interpret foreign conditions. Accordingly, it will help minimize expenses and maximize income when pushing global initiatives.
Secondly, entering a global market involves dealing with three sets of law: the national law, laws of countries where company’s business partners and suppliers are located, and international business law (Hill, 2009). Global firms are expected to abide local laws even if they are unfamiliar with them. However, legal problems may arise if the laws that are strong in the home country are lax in the host country. Thus, international businesses face difficulties in incorporating practices and business ownership, negotiating and implementing contracts with foreign parties, and handling intellectual property rights – patents, trademarks, and copyrights. International business course can teach to deal with differences between home-country and host-country laws in order to help businesses operate successfully.
Finally, unlike domestic business, the global business involves converting money into different currencies (Hill, 2009). Fluctuations in exchange rate can affect company’s profitability. The course of international business can teach to adapt to exchange rate movements.
Differences between domestic and international business reflect the need for a separate course of international business.
Stable non-corrupt rule-based governance is often said to be essential for sustained economic growth. Economist Ed Glaeser argues that “democracy naturally leads to prosperity” (Is Democracy the Best Setting, 2007). He stresses the importance of the power of human capital – intelligent educated people – to make the country both rich and democratic. If people are smart enough to choose right representatives to run the nation, the county will gain stability and sustained economic growth.
Political stability is a precondition of economic prosperity. Therefore, a nation where stability and harmony prevail is a nation that would prosper. For instance, structured political system and transparency in governance enabled Singapore, a country with little natural resources, to become one of the developed nations with a high level of economic progress. In contrast, autocratic regimes are the worst thing for economic growth alone with civil wars. Thus, although Iraq has rich petroleum resources, political instability and terrorism pull back economic progress in the country.
Undoubtedly, democratic political system encourages rather than stifles economic progress. However, it can be argued that democracy is a critical precondition of sustained economic development. There have been examples of totalitarian regimes that have experienced rapid economic growth. These include South Korea, Taiwan, Singapore, and Hong Kong. These countries have grown faster than Western economies in the past 30 years. However, as economist Daron Acemoglu states, autocratic regimes can generate growth only for certain periods of time whereas democratic counties like he USA experience rapid economic growth (Is Democracy the Best Setting, 2007). Therefore, economic progress is more typical for stable democratic political systems.
Culture is a critical factor to consider when entering a global market. Managers of international companies need to develop cultural competence in order to work successfully in the international context. Let us look at cultural differences between the USA and China and their influence on conducting business in these countries.
The United States and China have many cultural differences. As a result, the costs of doing business, business practices, and perspectives for future economic development vary in the two countries. Primarily, the two countries differ in terms of individualism. Thus, individual initiative, independence, and self-reliance are significant features of American culture (Communicaid, 2013). By contrast, the prevailing ideology in China is Confucianism, which stresses the importance of collectivism and reciprocal obligations (Gornill, 2009).
Secondly the countries differ in the value added to communication. The US is a low context culture. Typically, Americans are task-centered and direct and communicate meaning explicitly (Communicaid, 2013). On the contrary, Chinese people tend to put subtle meaning into words and value non-verbal cues.
Another distinctive feature of American culture is the concept of equality. Despite multiculturalism of American society, Americans put emphasis on equal participation in leadership. This reinforces cooperative interaction across power levels and creates a more stable cultural environment. On the other hand, China has high power-distance scores. Business organizations have hierarchical structures based on a strict observation of rank. In addition, they are less concerned with participative leadership (Gornill, 2009).
In addition, the United States and China differ in terms of time orientation. Both countries value time and punctuality, yet the concept of time is extremely exaggerated in America. The concept “time is money” is central to business culture of the country. Thus, Americans put emphasis on getting the best results in the shortest time. Chinese culture is quite the opposite. It displays Confucian values of persistence, thrift, patience, and willingness to work for long-term success.
Finally, the countries differ in their attitude to relationships. For instance, Americans usually make clear distinctions between work and personal life. On the contrary, Guanxi – a network of relationships based on trust and cooperation – is a fundamental principal of Chinese culture (Gornill, 2009).
Cultural divergence between China and the US is reflected in business practices of the countries. As a result of emphasis on individualism in American culture, the person is valued for his or her achievements rather than for social status or age. The US low-context culture is represented in direct and open business communication. Time orientation is strictly adhered to in the US business practices through punctuality and emphasis on meeting the deadlines. The orientation on short-term goals allows greater flexibility and freedom to react quickly to new opportunities in global business environment. As a result of clear distinctions between business and personal relationships, the US business meetings tend to be rather formal.
Commitment to providing equality in American society raises the cost of doing domestic business extremely high. Therefore, many US companies outsource production to low cost countries. Although the unemployment rate remains relatively high in America, emphasis on individualism and flexibility due to short-time orientation is likely to ensure economic stability. American business has survived the greatest challenges like civil war and the Great Depression. Therefore, it appears reasonable that the country will hold its position of the strongest and most technologically powerful economy.
Culture affects business practices in China as well. For instance, possessing the right guanxi is crucial for establishing effective long-term relationships with Chinese companies. While trust often overrules law in China, the companies should evaluate the benefits and risks of entering Chinese market. The major challenge for a company doing business with China is lax legal protection. However, cultural literacy could minimize the risk of entering a foreign market considerably.
China has become a major outsourcing destination in the world despite deficient protection and enforcement of intellectual property rights. It is reasonable to predict that low production cost will force companies to outsource their business operations to China. In the long run, it will promote sustained economic development in the country.
It seems that government should cater for its citizens: both business and consumers. If the government caters mostly for the interests of producers, the companies and their employees, the customer may suffer. At the same time, if the interest is placed solely on the customer then producers, businesses, and their employees may suffer. Apparently, if the government caters for the interests of one party more than of the other, in the long run it will have a negative impact on all parties involved. Therefore, the government should adopt the approach in trade policy, which will facilitate both producers and consumers.
The government has a responsibility to establish a policy, which will ensure that producers will have a competitive advantage in the global market. Theories outlined in strategic trade policy are designed to help businesses capture first mover advantages. Small business firms are a very important growing sector, which generates great income for country’s economy. They will have an entirely different influence on building policy. However, government intervention can be self-defeating as it sometimes protects the inefficient or triggers trade wars. Nonetheless, if the government does not set policy to protect the interests of business, then global firms may take an unfair advantage, as in the case of steelmakers.
On the other hand, according to a utilitarian approach, interests of consumers should be the primary concern of governments. A local company can gain competitive advantage if its domestic consumers are sophisticated and demanding. Customers’ pressure on local firms ensures meeting high standards of product quality and producing innovative products. In such a way, a free trade policy might benefit long-term interests of consumers and business.